New Guidance Reminds Virtual Currency Companies, Including Those Holding a BitLicense or a Money Transmitter License, to Implement Measures to Detect, Prevent and Respond to Fraud

DFS Also Reminds Virtual Currency Companies to Be Vigilant Against Market Manipulation

Financial Services Superintendent Maria T. Vullo today announced that the New York State Department of Financial Services (DFS) has issued guidance reminding all virtual currency entities licensed by New York State, including those that hold a money transmitter license, that they are required to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, and similar wrongdoing. In addition, DFS reminded virtual currency companies that they must be especially vigilant against efforts at market manipulation.

“DFS took the lead in 2015 in regulating the virtual currency market, and we continue to be vigilant concerning risks in these markets. Market manipulation presents serious risks, both to consumers and to the safety and soundness of financial services institutions,” said Superintendent Vullo. “As the cryptocurrency markets continue to evolve, DFS is directing virtual currency companies to take the necessary steps to guard against fraud, and to be extra vigilant about manipulation. By these actions, the market can evolve with strong regulatory supervision.”

In the guidance issued today, DFS directed virtual currency entities to adopt measures that include, at a minimum, effective implementation of a written policy that:

Identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation;

Provides effective procedures and controls to protect against identified risks;

Allocates responsibility for monitoring risks; and

As part of its procedures and controls to protect against identified risks, virtual currency entity must provide for the effective investigation of fraud and other wrongdoing, whether suspected or actual, including, as applicable, market manipulation.

In addition, immediately upon discovering any wrongdoing, a virtual currency entity must submit to DFS a report stating all pertinent details known at the time of the report. Virtual currency entities must also submit to DFS, as soon as practicable, a further report or reports of any material developments relating to the originally reported events, along with:

A statement of the actions taken or proposed to be taken with respect to such developments, and

A statement of changes, if any, in the virtual currency entity’s operations that have been put in place or are planned in order to avoid repetition of similar events.

DFS has approved six firms for virtual currency charters or licenses, while denying those applications that did not meet DFS’s standards. DFS has granted licenses to bitFlyer USA, Coinbase Inc., XRP II and Circle Internet Financial, and charters to Gemini Trust Company and itBit Trust Company.
A copy of the guidance can be found here.

###

Who We Supervise

Institutions That We Supervise

The Department of Financial Services supervises many different types of institutions. Supervision by DFS may entail chartering, licensing, registration requirements, examination, and more.